Schwartz v. The Insurance Company of the State of Pennsylvania
(Tex.App.- Houston [1st Dist.] June 19, 2008)(Hanks)
(health insurance coverage, delay in approval)
AFFIRM TC JUDGMENT: Opinion by Justice George C. Hanks, Jr.
Before Justices Nuchia, Hanks and Higley
01-07-00193-CV Rosa Schwartz v. The Insurance Company of The State of Pennsylvania, Gallagher Bassett
Services, Inc., and Belinda Ybarra
Appeal from 295th District Court of Harris County
Trial Court Judge: Hon. Tracy Christopher
O P I N I O N
Rosa Schwartz sued The Insurance Company of the State of Pennsylvania, Gallagher Basset Services,
Inc., and Belinda Ybarra (collectively, “Gallagher”) for damages arising from Gallagher’s alleged
unreasonable delay and denial in authorizing her requested foot surgery. The trial court granted Gallagher’s
plea to the jurisdiction. In two issues, Schwartz contends that the trial court erred in (1) ruling that she failed
to exhaust administrative remedies on her claims stemming from Gallagher’s refusal to pay for her foot
surgery and (2) granting Gallagher’s plea with respect to her claims arising from Gallagher’s refusal to pay
for the care of the neuroma on her foot. We affirm.
Background
On March 24, 2003, Schwartz’s foot was injured within the course and scope of her employment. She
was referred to Stephen R. Densen, M.D., who diagnosed her with a fractured toe. In July 2003,
The specific date when Dr. Densen filed the preauthorization request is not readily apparent fromthe record.
Gallagher’s claim notes show that the faxed request was received by its medicalnecessity reviewer on July
17, 2003.
Close Dr. Densen submitted a request for preauthorization for surgery with Schwartz’s employer’s insurance
carrier, Gallagher. On July 21, 2003, Gallagher’s medical necessity reviewer sent Dr. Densen notice that it
was denying preauthorization based on its doctor’s recommendation.
Following the denial, Dr. Densen appealed the decision and continued to work with Gallagher and its
medical reviewer in order to get the requested surgery approved. In October, Gallagher scheduled an
independent medical examination to address the dispute surrounding the surgery’s necessity. On March 16,
2004, Anthony Lamarra, M.D. conducted the independent examination of Schwartz’s toe and agreed that she
should receive the requested surgery. Dr. Lamarra also noted that Schwartz’s foot had a neuroma deformity
which should be treated, possibly by surgery.
In April, Dr. Densen filed another request for preauthorization for toe surgery. Gallagher’s medical
necessity reviewer again denied the request, after its reviewing doctor recommended the denial.
The doctor who reviewed the medical necessity of Dr. Densen’s second preauthorization requestwas not the
same doctor who reviewed the first preauthorization request.
Close However, on April 26, Gallagher overrode the medical necessity reviewer’s denial and approved the
surgery.
On May 27, Dr. Densen performed the surgery and noted “Unfortunately, [due to] the delay in timely
approval for the initial surgery I requested, the injury developed into a more serious condition which required
additional treatment including a second surgery.” In 2005, Dr. Densen performed this additional surgery to
correct Schwartz’s neuroma deformity.
Schwartz sued Gallagher on July 11, 2005, alleging claims for violations of the Texas Insurance Code
and Deceptive Trade Practices Act, breach of the duty of good faith and fair dealing, and legal malice. Two
days later, Gallagher sent Schwartz notice that it was disputing that Schwartz’s compensable injury extends
to her neuroma deformity. Nevertheless, in September, the parties entered into a benefit dispute agreement,
in which they agreed that the neuroma deformity was compensable.
In December 2006, Gallagher filed a plea to the jurisdiction. The trial court granted Gallagher’s plea
and dismissed Schwartz’s suit. Schwartz filed a motion for new trial, which the trial court denied. Schwartz
now appeals.
Plea to the Jurisdiction
In both of her issues, Schwartz asserts that the trial court erred in granting Gallagher’s plea to the
jurisdiction. A plea to the jurisdiction contests a trial court’s subject matter jurisdiction. Tex. Dep’t of Transp.
v. Jones, 8 S.W.3d 636, 638 (Tex. 1999). Whether a court has subject matter jurisdiction is a matter of law.
Tex. Dep’t of Parks & Wildlife v. Miranda, 133 S.W.3d 217, 226 (Tex. 2004). Accordingly, we review a
challenge to the trial court’s subject matter jurisdiction de novo. Id. at 228.
When reviewing a plea to the jurisdiction, we must look to the allegations in the pleadings, construe
them in the plaintiff’s favor, and look to the pleader’s intent. See County of Cameron v. Brown, 80 S.W.3d
549, 555 (Tex. 2002). In doing so, we consider the facts alleged in the petition, and to the extent relevant to
the jurisdictional issue, any evidence submitted by the parties to the trial court. See Bland Indep. Sch. Dist. v.
Blue, 34 S.W.3d 547, 555 (Tex. 2000). The plaintiff bears the burden to allege facts affirmatively
demonstrating the trial court’s jurisdiction to hear a case. See Tex. Ass’n of Bus. v. Tex. Air Control Bd., 852
S.W.2d 440, 446 (Tex. 1993). If a plaintiff pleads facts that affirmatively demonstrate an absence of
jurisdiction and the defect is incurable, then the cause is properly dismissed. Peek v. Equip. Serv. Co. of San
Antonio, 779 S.W.2d 802, 805 (Tex. 1989). However, when the plaintiff fails to plead facts that establish
jurisdiction, but the petition does not affirmatively demonstrate incurable defects in jurisdiction, the issue is
one of pleading sufficiency, and the plaintiff should be afforded the opportunity to amend. Brown, 80 S.W.3d
at 555.
Failure to Exhaust Administrative Remedies
In her first issue, Schwartz asserts that the trial court erred in granting Gallagher’s plea to the
jurisdiction and impliedly ruling that she failed to exhaust her administrative remedies on her claims stemming
from Gallagher’s refusal to pay for her foot surgery. Schwartz contends that the exhaustion of remedies
doctrine is inapplicable because she had no administrative remedies to exhaust. In support of this
contention, she argues that the Texas Workers’ Compensation Commission (“the Commission”)
The Texas Workers’ Compensation Commission was replaced in 2005 by the Texas Departmentof
Insurance, Division of Workers’ Compensation. See Tex. Lab. Code Ann. § 402.001 (Vernon2006).
Close would have dismissed any attempt she made to exhaust administrative remedies because no dispute
as to medical necessity existed. See 27 Tex. Reg. 12282, 12302 (2002) (former 28 Tex. Admin. Code §
133.308(i)(1), effectiveJan. 1, 2003) (noting that the Commission may dismiss a request for medical
necessity disputeresolution if the requestor informs the Commission, or it otherwise determines, that the
dispute nolonger exists), amended by 31 Tex. Reg. 10314 (2006) (current version at 28 Tex. Admin.
CodeAnn. § 133.308(h)(1) (2008)).
Close According to Schwartz, there was no dispute as to the medical necessity of her surgery at the time the
underlying lawsuit was filed, because Gallagher ultimately agreed that the surgery was necessary. We
disagree.
Schwartz contends that Gallagher’s ultimate approval of the surgery precluded any need for her to
exhaust administrative remedies. See Tex. Mut. Ins. Co. v. Ruttiger, No. 01-06-00897-CV, __ S.W.3d __
2008 WL 184240 (Tex. App—Houston [1st Dist.] Jan. 17, 2008); In re Tex. Workers’ Comp. Ins. Fund, 995 S.
W.2d 335 (Tex. App—Houston [1st Dist.] 1999, orig. proceeding). However, “[t]he fact that the . . . surgery w
[as] ultimately authorized does not constitute any type of determination by the Commission that the initial
denial . . . [was] improper. Therefore, there does remain a dispute for the Commission to resolve.” In re Tex.
Mut. Ins. Co., No. 05-05-00944-CV, 2005 WL 1763562, at *2 (Tex. App.—Dallas July 27, 2005, orig.
proceeding). Accordingly, an unresolved dispute as to the surgery’s medical necessity in July 2003 still
existed when Schwartz filed suit.
The Legislature has given the Commission exclusive jurisdiction of disputes over preauthorization of
medical treatment. See Am. Motorists Ins. Co. v. Fodge, 63 S.W.3d 801, 803 (Tex. 2001) (citing Tex. Lab.
Code Ann. § 413.031). The Commission must have determined that the medical treatment was entitled to
preauthorization before a trial court can adjudicate a claim arising from a carrier’s delay or denial of
preauthorization for such treatment. See Pickett v. Tex. Mut. Ins. Co., 239 S.W.3d 826, 836 (Tex. App.—
Austin 2007, no pet.) (relying on Fodge); In re Tex. Mut. Ins. Co., 2005 WL 1763562, at *2 (same); Malish v.
Pac. Employers Ins. Co., 106 S.W.3d 744, 746 (Tex. App.—Fort Worth 2003, no pet.) (same). The
Commission has promulgated specific administrative remedies for the resolution of medical necessity
disputes.
See generally 28 Tex. Admin. Code Ann. §§ 133.305, .308 (2008); § 134.600 (2008). For theAdministrative
Code sections in effect when Gallagher initially denied preauthorization and whichapply in this appeal, see
generally 27 Tex. Reg. 12282 (2002) (former 28 Tex. Admin. Code §§133.305, .308, effective Jan. 1, 2003),
amended by 31 Tex. Reg. 10314 (2006); 27 Tex. Reg. 12359(2002) (former 28 Tex. Admin. Code §
134.600, effective Jan. 1, 2003), amended by 29 Tex. Reg.2349 (2004); 31 Tex. Reg. 3566 (2006).
Close Exhaustion of these administrative remedies is necessary for a claimant to receive a favorable
Commission determination on the necessity of the medical treatment. See Pickett, 239 S.W.3d at 837.
Because neither her petition nor the record shows that Schwartz exhausted these administrative
remedies and obtained a Commission determination that the surgery was medically necessary when first
requested, we hold that the trial court properly granted Gallagher’s plea to the jurisdiction.
We also note Schwartz’s policy concern that requiring exhaustion of remedies in this situation willforce
parties to go through the administrative process rather than attempt to informally settle apreauthorization
dispute. We agree that the Legislature has provided protection for the informalsettlement of medical
necessity disputes. See, e.g., Tex. Lab. Code Ann. § 413.014(f) (Vernon2006) (an insurance carrier cannot
be hindered from voluntarily discussing prospective medicaltreatment with the injured employee’s health care
provider or from voluntarily preauthorizing theagreed-upon treatment). However, timely resolution of medical
necessity disputes is also publicpolicy, and the administrative steps available to resolve such disputes are
guided by mandatory timerequirements, which help ensure that carriers cannot unreasonably prolong the
resolution process. See generally 28 Tex. Admin. Code Ann. §§ 133.305, .308 (2008); § 134.600 (2008).
Close
Having held that the trial court properly granted Gallagher’s plea to the jurisdiction, we must determine
whether it properly dismissed Schwartz’s claims. If a claim is not within a court’s jurisdiction and the
impediment to jurisdiction cannot be removed, then the claim must be dismissed; but, if the impediment to
jurisdiction could be removed, then the court may abate proceedings to allow a reasonable opportunity for
the jurisdictional problem to be cured. Fodge, 63 S.W.3d at 805. For Schwartz to remove the impediment to
jurisdiction, she would have to be able to pursue the prescribed administrative remedies for determining
whether the surgery was medically necessary when Gallagher originally denied preauthorization.
Following a carrier’s denial, a claimant may request reconsideration of the denied health care within 15
working days of receipt of the denial and shall document the reconsideration request.
See 27 Tex. Reg. 12359 (2002) (former 28 Tex. Admin. Code § 134.600(g)(1), effective Jan. 1,2003),
amended by 31 Tex. Reg. 3566 (2006) (current version at 28 Tex. Admin. Code Ann. §134.600(o)(1)
(2008)).
Close Here, the carrier’s claim notes state that Dr. Densen appealed Gallagher’s 2003 preauthorization
denial and continued to seek approval for the surgery. However, the record does not reflect that a
documented request for reconsideration was made within 15 days of Gallagher’s July 21, 2003 denial.
Therefore, the impediment to the trial court’s jurisdiction cannot be removed. We hold that the trial court
correctly dismissed Schwartz’s claims.
We overrule Schwartz’s first issue.
Adequacy of Petition
In her second issue, Schwartz argues that the trial court erred in granting Gallagher’s plea to the
jurisdiction with respect to her claims arising from Gallagher’s denial of compensation for her neuroma
deformity. We begin, however, by determining whether Schwartz’s petition alleged claims based on Gallagher’
s denial of compensation for her neuroma deformity. We hold that it does not.
Texas follows a “fair notice” standard for pleading, which looks to whether the opposing party can
ascertain from the pleading the nature and basic issues of the controversy and what testimony will be
relevant. Horizon/CMS Healthcare Corp. v. Auld, 34 S.W.3d 887, 896 (Tex. 2000). “The purpose of this rule
is to give the opposing party information sufficient to enable him to prepare a defense.” Roark v. Allen, 633 S.
W.2d 804, 810 (Tex. 1982). The test of fair notice is whether an opposing attorney of reasonable
competence, with the pleadings before him, can ascertain the nature and the basic issues of the controversy
and the testimony probably relevant. Bowen v. Robinson, 227 S.W.3d 86, 91 (Tex. App.—Houston [1st Dist.]
2006, pet. denied). The “fair notice” requirement of Texas pleading relieves the pleader of the burden of
pleading evidentiary matters with meticulous particularity. Id.
It is undisputed that Gallagher’s denial of compensability of the neuroma deformity occurred after
Schwartz had filed her petition. Nevertheless, Schwartz contends that she complied with the fair notice
requirement, because her petition provided sufficient information to enable Gallagher to prepare a defense
based on its denial of the neuroma deformity’s compensability. Specifically, she argues that Gallagher
understood that it was being sued for its denial of compensation for the neuroma deformity because her
petition broadly alleged that Gallagher “chose to deny timely payment of benefits and continually deny
payment for necessary medical treatment.” Schwartz asserts that Gallagher should have filed a special
exception if it wanted to narrow the scope of her pleadings. We disagree.
Here, Schwartz’s petition did not give Gallagher fair notice that her claims also stemmed from its denial
of compensation for her neuroma deformity. Each claim in Schwartz’s petition specifically incorporates the
petition’s fact section, which only referred to Gallagher’s July 2003 denial for preauthorization of her toe
surgery, not her neuroma deformity. Schwartz never amended her petition to include any other acts of
Gallagher. Accordingly, we hold that Schwartz’s petition does not allege any claims based on Gallagher’s
denial of compensation for her neuroma deformity; the scope of her petition is limited to claims arising from
Gallagher’s initial preauthorization denial. See Auld, 34 S.W.3d at 896. Because the proceedings below did
not address Schwartz’s claims based on Gallagher’s neuroma compensation denial, the trial court’s order
granting Gallagher’s plea to the jurisdiction did not address the claims either.
We overrule Schwartz’s second issue.Conclusion
We affirm the judgment of the trial court.
George C. Hanks, Jr.
Justice
Panel consists of Justices Nuchia, Hanks, and Higley.